Active Portfolio Management As It Relates To The Tragedy In Japan

Over the past 2 weeks, financial markets worldwide have been shaken. This past Wednesday, markets slid for the third consecutive day on fears that a partial meltdown may have occurred at a nuclear plant in Japan. As a result, stocks erased nearly all of their gains for 2011. The Dow lost 3.6 percent over a three day period, its worst three-day loss since last July.

At the same time, Treasury prices rose and yields sank to their lowest levels this year as investors ran to investments perceived to provide more stability. Bill Stone, chief investment strategist with PNC Wealth Management, stated “Investors are moving away from anything that has an element of risk with it because they don't know what's happening in Japan.”

In addition to the Dow losses, the S&P index dropped nearly two percent and was showing a loss for the year when it had previously been up as high as 6.8 percent back in February. At the same time, the Nasdaq Composite Index fell 1.9 percent to 2,610, translating to a slide of 1.4 percent for 2011.

Yields on the 10-year Treasury note dropped as low as 3.15%, the bottom level this year which, if there is any silver lining in this cloud, dipped already bottomed out mortgage rates slightly. But in the wake of a Commerce Department report that new and existing home sales were decreased for February, it is questionable that the minor decrease in mortgage rates will have much of an bearing on the housing market.

Coupled with this news was the steep incline in fuel prices in February along with a reported 4% increase in the cost of food- the biggest one month increase in the previous 36 years. Shares of coporations affected by the rise in food costs also decreased on this news.

Current world conditions support the necessity for active portfolio management in financial and retirement planning. As stated in previous articles, the key to good wealth management lies not only in identifying the “winners” in the market but also missing the sharp declines and knowing when to adjust and shift investment strategies accordingly. While active portfolio management is not a guarantee of security from market downturns, it can greatly reduce the danger of loss.

A portfolio worth $100,000 last week may have easily lost 10% of its worth in just 4-5 days. As a result, that portfolio would now have a market value of $90,000 and need more than an 11% increase just to return back to the original $100,000. Active portfolio management could have prevented much of the loss by anticipating market shifts based on world sentiment over the tragedy in Japan. Now that we are beginning to see a correction on Wall Street (the Dow is up 144 on the day of this writing), active portfolio management could have resulted in profits during the past seven days, rather than panic.

Working with an qualified and dedicated financial planner is the only way for you to reap the benefits and avoid the pitfalls of market volatility- a volatility that is not liable to dissipate any time soon.

Investment Advisory Services offered through John P. Dubots Capital Management, LLC.

By: John Dubots

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Learn more about active portfolio management and its benefits by contacting John Dubots, Temecula retirement advisor, with Dubots Capital Management. Dubots has over two decades in the industry and will provide a free consultation to answer all of your portfolio management questions.